Musings about Bitcoin

              Bitcoin is something that we come across a lot in newspaper and in general discussions around. But many don’t know what it really is and how it is relevant as an investment option as money?

Bitcoin is not a sort of printed currency like Rupees, Dollars, Euros etc. It is produced by computers using free software all around the world. It facilitates payment to be sent between users without having a sanctioning central authority.

Bitcoin in simple words can be defined as a crypto currency or a digital currency.  It uses rules of cryptography for regulation and to circulate units of currency.  Such crypto currency is generally categorized as a decentralized digital currency.  Who is the inventor of Bitcoin?

It was invented by Satoshi Nakamoto in 2009 as an electronic payment system based on mathematical proof. The interesting fact is that no one really knows who this Satoshi Nakmoto is. Some confusing aspects are there about Bit coin. To make it simple, it can be separated into two parts. On one part there is bit coin which is a token with a snippet of code that embody ownership of a digital concept. The other one is a distributed network that maintains a ledger of balances of bit coin-the-token.

In simple terms it can be explained as a completely virtual coins made to be ‘self-contained’ for their value and it requires no banks to transfer and store the money.

Bitcoin can be used to purchase goods and services online. You can also simply store them hoping that their value increases over the years. It is traded from one personal wallet to another.  What is wallet?

It is a small database that is stored in your smart phone, computer drive, cloud or 

in your tablet. How does it function?

Initially it was known as crypto currencies. Earlier the plan was to develop a currency not bridled by the government or business, that can be traded globally, having no cost and without revealing your identity. Its popularity resulted in copycats named ’altcoins’. Now there is second generation currencies that are virtual named Ethereum and Bit coin cash.

Bitcoin currencies use “Crypto graphic proof instead of trust, enabling two concerned parties to transact directly with each other without the requirement of trusted third party. A blockchain that is cryptographically secure is used to record payment transactions. In every 10 minutes new bit coins are released at a rate of 25 new coins. It’s output will soon come to an end as it was envisaged not to release more than 21 million; already there is 16 million in use.

The line numbered ‘code’ made out of computer programming once purchased can be exchanged for some goods and services like normal money. Investors enamored by it try to capitalize on the trend while other investors are cautious about it.  Where to get Bitcoin?

Normally once can receive them as payment for goods or services. A person can buy them directly from individuals or special website called ‘exchanges.   Future of Bitcoin.....

In advanced stage there could be an autonomous financial future commanded by machines rather than humans.

Now we have second-generation crypto currencies like Ethereum which can execute smart contracts. It operates using pieces of computer code that can interact with other coded contracts and perform work like moving money around and making decisions.

There have been so many warnings circulating around about Bit coins. It was mainly because 

of the fear that investors may lose a packet.

Another fact is that it has no central bank that stands behind and cab be regulated by any state. Some experts agree that bubble could burst at any moment. There had been incidents of value collapse.

Many have labeled Bit coins as a “fool’s asset”. It is said so because Bit coin is the only way to make money for many and they fish for a greater fools and sell it to them for a higher price. It is speculative investment and is a sort of gambling. Iconic investor Warren Buffet once said “stay away from it. It is a mirage basically.”

People are quiet worried about it because it is being exploited by animals and hackers. The transactions remain untraceable and it is a blessing for drug dealers and money laundering.

Conventional currencies are prone to laundering and counterfeit and there is no possible way to curtail it fully. In bit coin these risks are more evident and vulnerable because of anonymous modus operandi.

Another noticeable defect is that bit coin still is in the growing stage. It has to evolve to reach its full and final potential. In order to make it more secure and accessible, new features, services and tool are in the anvil.

Bitcoin has some merits too. It offers huge profits. It makes it possible to send and get money anywhere in the world. At present it is free of fees or charges or maybe low fees within bitcoin payments.

Bitcoin requires people to be educated about it to apply in the daily transactions. It is volatile because there is limited amount of coins and demand for them increases day by day.

Many are of the opinion that Bit coin has entered its bubble phase, but that would not stop it from being a fad among those looking for investments.The other side of the story is that there are many countries who have refrained from giving it a legal status for example India. 

Recently, the Reserve Bank of India (RBI) released a statement that restricted banks from doing business with any  units that deal in virtual currencies like Bit coin. In the beginning of this year, Finance Minister had declared that Bitcoin is not a legal tender in India and has compared it to Ponzi schemes.  The other countries that have classified Bit coin illegal are Morocco, Bolivia, Ecuador, China and Nepal. Many Chinese people still continue to trade crypto coins through in-person trades and also using apps like Telegram and Wechat.

Meanwhile there is news that Face book is going to launch crypto currency. There were rumors that Face book CEO Mark Zuckerberg is interested in crypto currency and is exploring technologies to launch it.  David Marcus who is the former head of Face book Messenger said that he will head an exploratory blockchain group. He said, “I am setting up a small group to explore how to best leverage blockchain across Faceboo, starting from scratch”.

It is better to analyse the pros and cons before indulging in the usage of bit coins. People are slowly learning about it and may take time to understand all its nuances.         Bonnie Basil

 

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